Household wealth tops pre-recession peak for first time

By Michelle Jamrisko, Bloomberg •June 6, 2013 6:13 pm

WASHINGTON — Household wealth jumped to a record in the first quarter, exceeding its pre-recession peak for the first time, bolstered by gains in the stock and housing markets that are helping Americans mend finances.

Net worth for households and non-profit groups increased by $3 trillion from January through March, or 4.5 percent from the previous three months, to $70.3 trillion, the Federal Reserve said Thursday from Washington in its financial accounts report, previously known as the flow of funds survey.

Household wealth eclipsed its pre-recession level as gains in the stock and housing markets help Americans withstand an increase in the payroll tax this year. Lending rates kept low by the Federal Reserve, coupled with further gains in employment, may continue to repair balance sheets and support consumer spending that makes up about 70 percent of the economy.

“We’re still on track for another improvement in net worth in the second quarter,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Conn. “It is having a positive effect.”

Household net worth is $2.29 trillion above its pre-recession peak of $68.1 trillion reached in the third quarter of 2007. It was at $67.3 trillion in the last three months of 2012.

The value of financial assets owned by American households, including stocks and pension-fund holdings, increased by $2.1 trillion in the first quarter to $57.7 trillion, Thursday’s Fed report showed.

Equity prices have built on those gains so far this quarter even as federal budget cuts weigh on economic growth and concern that Fed policymakers will scale back bond purchases have hurt the market in the last three weeks. The Standard & Poor’s 500 Index advanced 3 percent through June 5 since March 29, while the first quarter saw a 10 percent increase.

Household real-estate assets climbed by $836.8 billion, according to Thursday’s flow of funds data. Owners’ equity as a share of total household real-estate holdings increased to 49.2 percent last quarter from 46.7 percent in the previous three months.

A recovering housing market is helping to support those gains. Property values rose 10.5 percent in the 12 months through March, the biggest gain in seven years and the 13th consecutive advance in national home prices, according to Irvine, Calif.-based CoreLogic Inc.

Automakers are seeing a boost in orders as consumers find the wherewithal to spend. Cars and light trucks sold at a 15.2 million annualized rate in May, making it the sixth month out of the last seven to exceed the 15-million mark — a level that previously hadn’t been reached since February 2008. Stocks of General Motors, Ford and Fiat, the majority owner of Chrysler, are all up more than 20 percent since March.

“Housing has kind of led the way with truck sales,” Kurt McNeil, GM’s vice president of U.S. sales operations, said on a June 3 conference call. “You’re starting to see some positive data from consumer sentiment and consumer confidence. The stock market continues to do well.”

Americans reduced debt last quarter even as the residential real-estate market improved. Today’s report showed household borrowing decreased at a 0.6 percent annual rate from January to March. Mortgage borrowing dropped at a 2.3 percent pace, the 16th consecutive decrease. Other forms of consumer credit, including auto and student loans, climbed at a 5.7 percent pace.

Total non-financial debt increased at a 4.6 percent annual pace last quarter, led by a 10.3 percent advance by the federal government and a 5.3 percent gain among companies. State and local government borrowing rose at a 1.9 percent pace.

Household finances on the mend are helping consumers meet their loan payments. Mortgage and consumer-loan payments in the fourth quarter accounted for 10.4 percent of after-tax income, the smallest share in records dating to 1980, according to Fed figures issued in March. The figure peaked at 14.1 percent in September 2007.

Still, when adjusted for inflation and population growth, household net worth had recovered less than half of the losses from the recession ended June 2009, according to research from the Federal Reserve Bank of St. Louis based on figures from the previous report. The gauge of inflation-adjusted net worth per household shows 45 percent of the losses had been regained through last year’s fourth quarter, according to the May 30 report.